Risk Aversion Still Dominates But Dollar Lost Momentum, Euro Recovers

Market overviews

Risk aversion is the theme of the day, with major European indexes trading in red, while US futures are also diving. Australian Dollar is leading other commodity currencies lower. While Dollar is firm, it’s losing some momentum entering into US session. In particular, the greenback is retreating after failing to break through a near term resistance against Euro again. Sterling is currently the stronger one, followed by Euro, will help from buying against Swiss Franc too.

Technically, Gold dips notably today but it’s still hold on above 1850.18 temporary low. For now, near term outlook in Gold stays bearish with 1919.63 resistance intact. Deeper decline is expected, sooner or later, through 1850.18. Next target is 100% projection of 2070.06 to 1889.79 from 1998.23 at 1817.96. Break of this projection level could prompt downside acceleration. Attention will be on how Gold’ next move correlate to FX pairs too.

In Europe, at the time of writing, FTSE is down -1.76%. DAX is down -1.37%. CAC is down -1.68%. Germany 10-year yield is up 0.010 at 1.145. Earlier in Asia, Nikkei dropped -2.53%. China Shanghai SSE rose 0.09%. Singapore Strait Times dropped -0.51%. Japan 10-year yield rose 0.0054 to 0.251.

Fed Bostic: No need to be moving more aggressively than 50bps

Atlanta Fed President Raphael Bostic told Bloomberg today that last week’s 50bps rate hike was “already a pretty aggressive move”. He added, “I don’t think we need to be moving even more aggressively.”

“I think we can stay at this pace and this cadence and really see how the markets evolve … We are going to move a couple times, maybe two, maybe three times, see how the economy responds, see if inflation continues to move closer to our 2% target, then we can take a pause and see how things are going,” he said.

Fed Kashkari: Virtually all of that news is in the wrong direction

Minneapolis Fed President Neel Kashkari said in a CNBC interview, “I’m confident we are going to get inflation back down to our 2% target, but I am not yet confident on how much of that burden we’re gonna have to carry versus getting help from the supply side.”

He added that “virtually all of that news is in the wrong direction,” pointing to Ukraine war and lockdowns in China.

He also emphasized that Fed is focused on its dual mandate, price stability and full employment. If data comes in different from expectations, Fed will change its policy approach.

Eurozone Sentix investor confidence dropped to -22.6, war only knows victims

Eurozone Sentix Investor Confidence dropped from -18.0 to -22.6 in May, worse than expectation of -20.8. The’s the third decline in a row, and the lowest reading since June 2020. Current Situation index dropped from -5.5 to -10.5, worst since March 2021. Expectations index dropped from -29.8 to -34.0, worst since December 2008.

Germany Sentix Investor Confidence dropped from -17.1 to -20.5, lowest since May 2020. Current Situation index dropped from -4.8 to -7.3, lowest since March 2021. Expectations index dropped from -28.8 to -32.8, all-time low.

Sentix said: “War only knows victims. The traces of the Ukraine conflict are also becoming increasingly visible in the economy. The sanctions against Russia are having an effect, on enemies and friends alike. Last month, the “first mover” economic index clearly pointed the way towards recession. At the beginning of May, the downturn deepened further. Europe is hit particularly hard. The overall Eurozone index drops to -22.6 points. And for Germany we report an all-time low in economic expectations. In other words: it’s coming thick and fast.”

Yuan selloff accelerates as China tightens up Shanghai lockdown again

The selloff in Chinese Yuan accelerates again today as the Chinese government tightened up city-wide lockdown in Shanghai again. The decision came after President Xi Jinping’s pledge last week to double down on the “battle” against the coronavirus.

USD/CNH (offshore Yuan) hits as high as 6.7763 so far today, highest level since late 2020. Technically, Current rise is at least in the same degree as the down trend from 7.1961 (2020 high). Further rise is expected as long as 6.6111 support holds. Next target is 61.8% retracement of 7.1961 to 6.3057 at 6.8560.

Also, released from China earlier today, exports rose 3.9% yoy in April, above expectation of 3.2% yoy. Imports dropped -2.0% yoy, versus expectation of -3.0% yoy. Trade surplus widened from USD 47.4B to USD 51.1B, basically in-line with expectations.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0487; (P) 1.0543 (R1) 1.0603; More…

EUR/USD recovers mildly today as consolidation from 1.0470 extends. Intraday bias remains neutral for the moment. In case of another recovery, upside should be limited by 1.0756 support turned resistance to bring fall resumption. On the downside, firm break of 1.0470 will resume larger down trend to 161.8% projection of 1.1494 to 1.0805 from 1.1184 at 1.0069.

In the bigger picture, the decline from 1.2348 (2021 high) is expected to continue as long as 1.1185 support turned resistance holds. The break of 1.0635 (2020 low) now raises the chance that it’s resuming long term down trend from 1.6039 (2008 high). Retest of 1.0339 (2017 low) low should be seen next. Decisive break there will confirm this bearish case.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:30 JPY Labor Cash Earnings Y/Y Mar 1.20% 0.90% 1.20%
23:50 JPY BoJ Monetary Policy Meeting Minutes
02:00 CNY Trade Balance (USD) Apr 51.1B 51.2B 47.4B
02:00 CNY Exports (USD) Y/Y Apr 3.90% 3.20% 14.70%
02:00 CNY Imports (USD) Y/Y Apr -2.00% -3.00% -0.10%
02:00 CNY Trade Balance (CNY) Apr 325.1B 340B 301B
02:00 CNY Exports (CNY) Y/Y Apr 1.90% 16.40% 12.90%
02:00 CNY Imports (CNY) Y/Y Apr -2.00% -2.90% -1.70%
06:45 EUR France Trade Balance (EUR) Mar -12.4B -11.2B -10.3B -10.4B
08:30 EUR Eurozone Sentix Investor Confidence May -22.6 -20.8 -18
12:30 CAD Building Permits M/M Mar -9.30% 3.40% 21.00%
14:00 USD Wholesale Inventories Mar F 2.30% 2.30%